By Greg Tubby PERTH, Aug 31 AAP - An out-of-the-money gold hedge book has forced iconic mining house Sons of Gwalia Ltd to its knees, but its tantalum business still accounts for about 55 per cent of world production and could prove attractive to potential buyers. Global demand for tantalum - a specialty metal used in everything from mobile phones to Playstations - has recently rebounded to the heady heights of the dot.com boom. The surging demand pushed ore prices earlier this year to $US40-50 per pound from a low of $US15 in 2002, with US-based Cabot Corp, one of the two biggest processors in the tantalum industry, saying demand was within five per cent of 2000 peak levels, or 85 per cent above the 2002 lows. Uncertainty over Sons of Gwalia's output continuing could lead to a further lift in the tantalum price as consumers may scramble to acquire or lock in supplies, Intersuisse said. "With Sons of Gwalia producing about 55 per cent of the world's primary tantalum output, and being the only major potential source of increased output in the near term at a time of strongly rising tantalum demand because of its dominant reserve and resource position, major consumers might be forced to move to stabilise the world tantalum market," Intersuisse said. Although Sons of Gwalia's administrators hope to recapitalise its tantalum business, the assets could prove attractive to a number of potential buyers, Goldman Sachs JBWere said. "We expect that the sale of this business, as opposed to a recapitalisation, is a possible outcome," it said. WMC Resources Ltd has already said it might look at the tantalum assets. But Credit Suisse First Boston said limited disclosure - which it described as among the worst of the peer group - made it difficult to unravel the operating performance of Sons of Gwalia's tantalum business. "While the tantalum business was deteriorating, seemingly on declining asset quality, returns seemed strong and the business sound, although uninspiring from a value growth perspective," it said. In the meantime, Sons of Gwalia's problems might present an opportunity for niche tantalum producers, Intersuisse said. "We regard Tantalum Australia NL as being well placed to participate in some of the potential opportunities that might eventuate from the longer term fall-out of Sons of Gwalia being unable to continue its tantalum production and its assets being sold off," it said. "In the nearer term, we would expect Tantalum Australia to be a beneficiary of firmer tantalum prices if the tantalum market reacts as expected when its major supplier's future is uncertain, as it is now." Haddington Resources Ltd, which mines tantalite near Kalgoorlie and sells it to Sons of Gwalia under a take or pay contract, has halted trading in its shares after slipping 1.5 cents yesterday to 10.5 cents yesterday on an unusually strong turnover. But one market observer said Haddington may benefit if the major tantalum consumers are forced to deal with the company directly rather than through Sons of Gwalia. Another potential beneficiary from higher tantalum prices is Perth-based Gippsland Ltd, which is expected to release the results of a bankable feasibility study on its high grade Abu Dabbab project in Egypt next week. Gippsland shares closed up 0.5 cents at 10 cents today.
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